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How to Get More Out of Your Network Alliances

Business networks are not just about cutting costs. New strategy frameworks show how you can create value by combining ideas, resources or market access across different partners.

By Andrew Shipilov, INSEAD Associate Professor of Strategy

PSA Peugeot Citroen, or Peugeot for short, is a former French industrial icon. In the past two years, it struggled to escape from € 7 billion losses. A €3 billion capital increase from the French state and Dongfeng, a Chinese carmaker, should help Peugeot secure its future. Will it be bright?

The alliance between Peugeot and Dongfeng is one of the thousands of alliances that companies formed around the world in the past 10 years. The classic frameworks of strategy analysis, however, don’t provide much guidance for how to extract value from alliances. Take for example a classic “value chain” tool popularized by Michael Porter:

As a business educator and a consultant, I love this framework. It helps map activities of a firm and to think about how they relate to its competitive advantage. The weakness of the framework is that it is too much focused inside the firm and is not meant to help executives think about opportunities for value creation by collaborating with other companies.

When I taught this book at INSEAD, a group of Executive Education participants proposed a really cool way to integrate the logic behind the value chain with alliance thinking. This gave birth to a new framework which we call “Alliance Radar.”

The Radar can help you look outside of your firm. It:

links alliances to specific parts of your value chain

helps visualize all of the alliances which your company has

identifies new opportunities for value creation across different alliances.

Let’s use this tool to compare alliances of Toyota and Peugeot. I picked these examples because I own cars from both car makers. Another reason is that lately Toyota has been much more innovative than Peugeot and this tool can help understand why.

Let’s start by identifying the key areas of two companies’ value chain. For simplicity, let’s assume that they are Production, R&D, Sales and After Sales. You can draw a radar like this:

Now let’s take all of Toyota’s alliances and classify them into three categories: primarily aimed at cost reduction (red), aimed at innovation and differentiation (green) and those aimed at both cost reduction and differentiation (yellow).

This approach helps us immediately see that most of production alliances are aimed at cost reduction (and efficiencies in general), whereas in other areas Toyota focuses on differentiation of its products.

We can also see areas in which Toyota can create value across different alliances. For example, let’s take three alliances and move them in the “bull’s eye”. Between 2008 and 2013, Toyota worked with Google to optimize search experience for Toyota’s products, collaborated with GM to make Prius in the U.S. and worked with Intel to integrate sensors inside the car with your smartphone. The tool tells us that Toyota can create value by integrating ideas across these three alliances and make a new product “Smart Social Prius”. I am not sure such car exists yet, but it is definitely in the works!

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